ZTE's preliminary 1H17 results indicated 32% YoY growth in 2Q17 profits against 9.1% growth in revenue. That was an acceleration of 28% YoY profit growth in 1Q17. We believe both the carrier and consumer segments recorded margin expansion. Its 1H17 profit was 55% of our consensus-beating FY forecast. Ericsson's poor 2Q17 results showed ZTE likely gained further share in China. Detailed results will be released on Aug. 25.

ZTE is likely to have performed strongly across the board.

We believe both the carrier and consumer segments reported margin expansion, driven by both scale (revenue growth) and strong cost control. We previously reported that its overseas handset sales had recovered strongly, and, combined with continued strength in set-top box and modem demand in China, likely contributed to strong performance in the consumer segment.

While we do not have details yet to judge how the carrier business performed in 1H17, we believe Ericsson's 2Q17 results (reported yesterday, stock down 16%) gave us some hints. Ericsson reported a YoY decline in China revenue, which we believe represented a further loss of market share to ZTE and Huawei.

Key points for investors to focus on when ZTE releases detailed results on August 25 are the company’s gross margin and inventories, which markedly increased last year because of delays in capex recognition by customers.

ZTE shares are up 49% this year and trade at 16 times forward earnings.

Earlier this year, ZTE was fined up to $1.2 billion by U.S. authorities for breaching sanctions against North Korea and Iran.

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